Reason Foundation

PokerStars, Full Tilt Poker, the U.S. Attorney and What Just Happened

Yesterday brought a spate of news reports, many of them inaccurate or oversimplified, about a settlement the U.S. Attorney’s office in Manhattan reached with two major international Internet poker sites—PokerStars and Full Tilt Poker.

The buried lead--and very good news for online poker players--is that Internet poker site PokerStars is back in business. Manhattan U.S. Attorney Preet Bharara ended his case against the site and it is now free to re-enter the U.S. market when states begin permitting Internet gambling, which could start as early as this year in states such as Nevada and Delaware.

The three-way settlement itself is rather complicated. Full Tilt Poker will have to forfeit all of its assets, at this point mostly property, to the U.S. government. PokerStars will then acquire those forfeited Full Tilt Poker assets from the feds in return for its own forfeiture of $547 million. PokerStars also agreed to make available $184 million in funds in deposits held by non-U.S. Full Tilt players, money players believed was lost.

What the shutdown did reveal, however, was a shortfall in player deposits at Full Tilt, which led prosecutors to charge that Full Tilt was illegally paying investors out of player funds in a Ponzi-like scheme. Those charges, which look to be more serious then the UIGEA violations, still have yet to be resolved. The deal prohibits Full Tilt management and investors to have roles in PokerStars.

The U.S. government seized these funds on April 15, 2011 when it shut down Full Tilt, PokerStars and a third site, Absolute Poker, on charges of money laundering. The date has become known as Black Friday in the poker community. Specifically, the three sites were charged with violation of the 2006 Unlawful Internet Gambling Enforcement Act (UIGEA), which prohibited U.S. banks from transferring funds to off-shore Internet poker and gambling sites. To combat the measure, sites such as PokerStars and Full Tilt began using payment processors that allegedly lied to U.S. banks about their ties to gambling sites. Although this would be fraud under the letter of the law, the U.S. government never claimed payment processors stole money from players or banks and no evidence suggests they did.

If you see something truly punitive here, please comment. The arrangement actually appears to be another concession by the government on Internet gambling. The first, and still most significant, was the Department of Justice’s December 2011 memo to Illinois and New York saying the Wire Act does not prevent them from selling lottery tickets online—or offering any other wagering game on the Internet--as long as customers are in-state. That decision opened the door to state Internet gambling legislation and several states have jumped at it. The New York settlement also strengthens the contention, voiced by some in the gaming law community, that the government, faced with pressure from states who covet tax revenue, the unpopularity of the Internet gambling prohibition, and the difficulty in winning convictions, may eventually grant some sort of general amnesty just to get free of what was, at the end of the day, a political compromise to appease a handful of moralists in Congress.

The PokerStars settlement, while allowing U.S. Attorney Bharara to save face, may be the first step toward that.

Hat tip to Hard Boiled Poker, a blog that adeptly clarifies the media’s inaccuracies and oversights in reporting this story as well outing the inability of CNNmoney.com's editors to tell the difference between a blackjack and poker layout. The blog commends Forbes.com's coverage as the best for grasping the settlement's significance.